On January 1, 20X2, ABC signed an agreement to operate as a franchisee of Ace Company for an initial franchise fee of p12, 000, 000. On the same date, ABC paid P4, 000, 000 and agreed to pay the balance in four equal annual payments of P2, 000, 000 beginning January 1, 20X3. the down payment is not refundable and no future services are required of the franchisor. ABC can borrow at 14% for a loan of this type. Present and future value factors are as follows: Present value of 1 at 14% for 4 periods 0.59 Future amount of 1 at 14% for 4 periods 1.69 Present value of an ordinary annuity of 1 at 14% for 4 periods 2.91 What should be recorded as the acquisition cost of the franchise?
On January 1, 20X2, ABC signed an agreement to operate as a franchisee of Ace Company for an initial franchise fee of p12, 000, 000. On the same date, ABC paid P4, 000, 000 and agreed to pay the balance in four equal annual payments of P2, 000, 000 beginning January 1, 20X3. the down payment is not refundable and no future services are required of the franchisor. ABC can borrow at 14% for a loan of this type. Present and future value factors are as follows: Present value of 1 at 14% for 4 periods 0.59 Future amount of 1 at 14% for 4 periods 1.69 Present value of an ordinary annuity of 1 at 14% for 4 periods 2.91 What should be recorded as the acquisition cost of the franchise?
Intermediate Accounting: Reporting And Analysis
3rd Edition
ISBN:9781337788281
Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Chapter17: Advanced Issues In Revenue Recognition
Section: Chapter Questions
Problem 7C: On January 1, 2019, Mopps Corp. agrees to provide Conklin Company 3 years of cleaning and janitorial...
Related questions
Question
- On January 1, 20X2, ABC signed an agreement to operate as a franchisee of Ace Company for an initial franchise fee of p12, 000, 000. On the same date, ABC paid P4, 000, 000 and agreed to pay the balance in four equal annual payments of P2, 000, 000 beginning January 1, 20X3. the down payment is not refundable and no future services are required of the franchisor. ABC can borrow at 14% for a loan of this type. Present and future value factors are as follows:
Present value of 1 at 14% for 4 periods 0.59
Future amount of 1 at 14% for 4 periods 1.69
Present value of an ordinary annuity of 1 at 14% for 4 periods 2.91
What should be recorded as the acquisition cost of the franchise?
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Recommended textbooks for you
Intermediate Accounting: Reporting And Analysis
Accounting
ISBN:
9781337788281
Author:
James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:
Cengage Learning
Principles of Accounting Volume 1
Accounting
ISBN:
9781947172685
Author:
OpenStax
Publisher:
OpenStax College
Intermediate Accounting: Reporting And Analysis
Accounting
ISBN:
9781337788281
Author:
James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:
Cengage Learning
Principles of Accounting Volume 1
Accounting
ISBN:
9781947172685
Author:
OpenStax
Publisher:
OpenStax College